German SMEs react calmly to Brexit shock

Frankfurt am Main (ots) -

- Moderate improvement in business climate among SMEs
- Business assessments at their highest level since April 2014,
expectations virtually stable
- Sales price expectations returning to normal
- Solid growth in Germany thanks to construction and consumption

The Brexit vote and the developments in Turkey have failed to
upset German SMEs. The SME business climate, the central indicator of
the KfW-ifo SME Barometer, rose instead by 0.3 points in July to 16.7
balance points, having already been on a consistent upwards
trajectory in the first half of 2016.

This is mainly due to SMEs' assessments of their current business
situation. At 27.6 balance points - 0.6 points more than in June -
the companies' evaluation of their current operations reached their
highest level since April 2014; the economy thus succeeded in getting
off to a good start in the third quarter. At the same time, the
business expectations of SMEs remain almost stable (-0.1 points to
5.7 balance points). Bearing in mind that uncertainty has heightened
considerably since the Brexit vote, this sends out a reassuring
signal that indicates sober-mindedness.

Nonetheless, the Brexit vote does not leave the SMEs entirely
unscathed. The first signs of a slowdown have been detected,
particularly in the export-sensitive economic sectors: sentiment is
stagnating among industrial SMEs, while weakening somewhat at a high
level in the wholesale sector.

The current leader in terms of "sentiment" is the SME construction
sector, whose climate indicator climbed 1.3 points in July to reach a
new all-time high of 27.9 balance points. Given the forecasted strong
demand for new dwellings, residential construction, which is
essential for the small and medium-sized construction companies, will
likely remain a reliable driver of the German economy for some time
to come.

On the other hand, corporate investment has become an economic
uncertainty among the GDP components following the Brexit decision. A
deterioration of the economic outlook in Europe and uncertainty about
the future relationship with the UK, which is Germany's third most
important export market, could lower the propensity to invest. It is
therefore very opportune that the sales prospects, which are an
important determinant of investment decisions, are at least supported
again on the price side. For the first time since the beginning of
2014, the sales price expectations of small and medium-sized
companies at least reached the long-term average again in July.

Overall, the July results of the KfW-ifo SME Barometer are
consistent with KfW's updated economic forecast for 2016 and 2017. Dr
Jörg Zeuner, Chief Economist at KfW Group, stated in this respect,
"We predict solid growth in employment, consumption and residential
construction, which is however likely to be offset by less dynamic
exports and corporate investment under the new Brexit conditions
compared with the previous forecast." All in all, he expects the
German economy to grow by 1.5% in 2016 and by 1.2% in 2017, and
points out that the slowdown is attributable solely to the fewer
number of working days next year. "Although the economic outlook is
not particularly spectacular, it is nonetheless still quite solid
under the present general conditions - thanks to domestic demand",
Zeuner said.

The current KfW-ifo SME Barometer can be found at:
www.kfw.de/mittelstandsbarometer.

KfW Business Cycle Compass Germany and Europe - Brexit update:
www.kfw.de/Konjunkturkompass.

Contact:
KfW, Palmengartenstr. 5 - 9, 60325 Frankfurt
Kommunikation (KOM), Nathalie Cahn,
Tel. +49 (0)69 7431 4400, Fax: +49 (0)69 7431 3266,
E-Mail: presse@kfw.de, Internet: www.kfw.de